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STRYKER CORPORATION 2017 FORM 10-K Dollar amounts in millions except per share amounts or as otherwise specified. 11 affect the comparability and trend of sales. Percentage organic sales growth is calculated by translating current year results at prior year average foreign currency exchange rates excluding the impact of acquisitions. To measure earnings performance on a consistent and comparable basis, we exclude certain items that affect the comparability of operating results and the trend of earnings. These adjustments are irregular in timing and may not be indicative of our past and future performance. The following are examples of the types of adjustments that may be included in a period: 1. Acquisition and integration-related costs. Costs related to integrating recently acquired businesses and specific costs (e.g., inventory step-up and deal costs) related to the consummation of the acquisition process. 2. Amortization of purchased intangible assets. Periodic amortization expense related to purchased intangible assets. 3. Restructuring-related and other charges. Costs associated with the termination of sales relationships in certain countries, workforce reductions, elimination of product lines, weather- related asset impairments and associated costs and other restructuring-related activities. 4. Rejuvenate and other recall matters. Our best estimate of the minimum of the range of probable loss to resolve certain product recalls. 5. Regulatory and legal matters. Our best estimate of the minimum of the range of probable loss to resolve certain regulatory matters and other legal settlements. 6. Tax matters. Charges represent the impact of accounting for the compliance with the Tax Cuts and Jobs Act of 2017, certain significant and discrete tax items and adjustments to interest expense related to the settlement of certain tax matters. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. These adjusted financial measures should not be considered in isolation or as a substitute for reported sales growth, gross profit, cost of sales, selling, general and administrative expenses, amortization of intangible assets, operating income, effective income tax rate, net earnings and net earnings per diluted share, the most directly comparable GAAP financial measures. These non-GAAP financial measures are an additional way of viewing aspects of our operations when viewed with our GAAP results and the reconciliations to corresponding GAAP financial measures at the end of the discussion of Results of Operations below. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. The weighted-average basic and diluted shares outstanding used in the calculation of non-GAAP earnings per share are the same as those used in the calculation of the reported per share amounts. Reconciliation of the Most Directly Comparable GAAP Financial Measure to Non-GAAP Financial Measure 2017 Gross Profit Selling, General & Administrative Expenses Amortization of Intangible Assets Operating Income Net Earnings Effective Tax Rate Diluted EPS Reported $ 8,173 $ 4,552 $ 371 $ 2,290 $ 1,020 50.6% $ 2.68 Acquisition and integration-related charges: Inventory stepped up to fair value 22 — — 22 20 (0.1) 0.05 Other acquisition and integration-related — (42) — 42 31 0.2 0.09 Amortization of purchased intangible assets — — (371) 371 250 3.0 0.67 Restructuring-related and other charges 57 (137) — 194 155 0.4 0.41 Rejuvenate and other recall matters — — — 173 131 0.7 0.34 Regulatory and legal matters — (39) — 39 25 0.4 0.06 Tax Matters — — — — 833 (39.6) 2.19 Adjusted $ 8,252 $ 4,334 $ — $ 3,131 $ 2,465 15.6% $ 6.49 2016 Gross Profit Selling, General & Administrative Expenses Amortization of Intangible Assets Operating Income Net Earnings Effective Tax Rate Diluted EPS Reported $ 7,495 $ 4,137 $ 319 $ 2,166 $ 1,647 14.3% $ 4.35 Acquisition and integration-related charges: Inventory stepped up to fair value 36 — — 36 23 0.4 0.06 Other acquisition and integration-related — (95) — 95 77 0.1 0.20 Amortization of purchased intangible assets — — (319) 319 221 2.2 0.59 Restructuring-related and other charges 15 (110) — 125 98 0.3 0.26 Rejuvenate and other recall matters — — — 158 127 0.1 0.34 Regulatory and legal matters — 12 — (12) (7) (0.2) (0.02) Tax Matters — — — — 8 0.1 0.02 Adjusted $ 7,546 $ 3,944 $ — $ 2,887 $ 2,194 17.3% $ 5.80